BRAZIL’S GROWTH POTENCIAL:
SOME NUMERICAL EXERCISES
EDMAR BACHA
Seminário Para Onde Vai a América Latina?
IBRE-FGV
08/10/2012
EXERCISES ARE ON GDP GROWTH SERIES FROM
1948 WITH EMPHASIS ON POST-2004 PERIOD
15.0%
12.5%
Yearly GDP growth rates (Y')
Ten-year moving average
10.0%
7.5%
5.0%
2.5%
-2.5%
-5.0%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1948
0.0%
A SOLOW DECOMPOSITION:
y’ = (Y/L)’ = TFP’ + α(uK/L)’
Decomposition of GDP per Worker Growth (y)', 1948-2011 (%)
1948-62
1963-67
1968-73
1974-80
1981-92
1993-99
2000-11
y’
4.4
2.4
5.7
3.6
-0.8
0.7
1.2
TFP’
1.67
0.50
3.30
0.90
-1.00
0.25
1.00
% of y’
0.38
0.23
0.58
0.26
1.37
0.35
0.81
0.46(uk)’
2.73
1.80
2.40
2.70
0.30
0.45
0.20
% of y’
0.62
0.77
0.42
0.74
-0.37
0.65
0.19
2005-11
1948-11
2.0
2.3
1.40
0.85
0.70
0.37
0.60
1.43
0.30
0.63
Memo: L’
3.1
0.6
5.8
3.9
0.4
2.3
2.4
2.0
1.8
TWO STYLIZED FACTS
• GDP growth, TFP and capital
deepening all collapsed after
1980
• TFP recovered more recently, but
capital accumulation remains
under par
DETERMINANTS OF CAPITAL ACCUMULATION
K’ = s(1/p)uv
Decomposition of Capital Growth (K ') (1948-2011)
Periods
K ' (% p.y)
s (% GDP)
u (%)
v
1/p (=1.0 in 2000)
1948-62
8.9
14.8
97.1
0.68
1.42
1963-67
6.6
15.8
92.6
0.61
1.25
1968-73
9.6
19.5
96.5
0.59
1.25
1974-80
9.8
22.6
96.2
0.55
1.20
1981-92
3.3
19.2
89.8
0.46
1.01
1993-99
2.3
17.0
93.1
0.44
1.02
2000-11
2.7
17.3
94.6
0.46
0.97
2005-11
3.5
18.3
95.5
0.47
0.98
Total
6.0
17.7
94.4
0.55
1.16
STYLIZED FACTS ABOUT K’
• Capital accumulation collapsed after 1980
• “Nominal” savings as such does not seem to be
the main problem. Critical issue is “real” savings:
loss of purchasing power of savings over
investment:
s/p (68-73) = 19.5x1.25=24.4
s/p (05-11) = 18.3x0.98=17.9
• Also, output/capital-in-use ratio (v) is much lower
than before
• Modest recovery of K’ more recently
RECENT K’ RECOVERY SEEMS TO BE
BASED ON EXTERNAL BONANZA
DOMESTIC SPENDING RATIOS TO GDP, 2005 PRICES
YEAR GFCF/Y FAMC/Y GOVC/Y
A/Y
2005
0,16
0,60
0,20
0,96
2006
0,17
0,61
0,20
0,98
2007
0,18
0,61
0,20
0,99
2008
0,19
0,61
0,19
1,02
2009
0,18
0,64
0,20
1,02
2010
0,20
0,64
0,19
1,04
2011
0,21
0,64
0,19
1,05
BONANZA FORMULA IN NEXT PAGE EXPLAINED
• Domestic spending equals domestic income plus foreign
transfers:
 PAA = PYY + F
• Foreign transfers equals the excess of imports over exports:
 F = PMM - PXX
• External bonanza is measured as the excess of domestic
spending over income in constant 2005 prices:
 A/Y - 1= (P – 1) + Z
where:
P = PY/PA (‘terms of trade’ effect)
Z = F/PA Y (foreign transfer effect)
IS THIS SUSTAINABLE?...
A/Y -1 = (P-1) + Z
Decomposition of External Bonanza, 2005-10
(in 2005 prices)
Year
Terms of
Foreign
Excess of
Trade
Transfer
Spending
Effect
Effect
over GDP
(P - 1)
Z
(A/Y - 1)
2005
0,0%
-3,6%
-3,6%
2006
0,7%
-2,9%
-2,2%
2007
0,9%
-1,5%
-0,6%
2008
1,7%
-0,2%
1,5%
2009
1,8%
0,2%
2,0%
2010
3,4%
1,1%
4,4%
2011
4,4%
0,8%
5,2%
...doubtful, unless Brazil opens up
(range of imports G&S/GDP, 2007-11, %)
•
•
•
•
•
•
Argentina
Brazil
Chile
Colombia
Mexico
Peru
16-22
11-13
32-40
17-20
29-32
20-27
•
•
•
•
China
India
Russia
South Africa
22-30
24-30
20-22
28-34
• Average (except BR)
23-28
CONCLUSIONS
• Brazil’s GDP growth and capital accumulation
collapsed after 1980
• Recently, there has been some recovery of GDP
growth and capital accumulation (plus TFP’)
• Extraordinary external bonanza may explain why
recovery of K’ occurred (TFP’ too?)
• Once the bonanza is over, ceteris paribus, Brazil’s
growth should retreat to under 4% p.y.
• Main problem seems to be that Brazil is closed to
imports. Which suggests that increased openness
is the way to higher growth.
REFERENCES
• Edmar Bacha and Regis Bonelli “Accounting for
the rise and fall of post-WW-II Brazil's
growth”, forthcoming.
• Edmar Bacha, “Bonança externa e
desindustrialização: uma análise do período
2005-2011”, forthcoming in E. Bacha and M.
de Bolle (eds.), O Futuro da indústria no Brasil:
desindustrialização em debate. Civilização
Brasileira, 2012.